Dispatch: Reversal of Fortune

In Palm Beach, Boston’s Jewish elite created a glittering world that unwittingly helped make Bernie Madoff possible. Laurence Leamer reports from behind the winter retreat’s manicured hedges on what it looks like now that the party is over.

The ties between Carl Shapiro and Bernie Madoff go back all the way to before their respective arrivals on the Palm Beach scene. When the men first met, Madoff was just 22 years old and fresh out of Hofstra, class of 1960, but Shapiro was nonetheless persuaded to put $100,000 into his fledgling investment firm. Shapiro, who was already wintering in Palm Beach, joined the Palm Beach Country Club in 1974. Madoff had visited Palm Beach over the years, but he and his wife, Ruth, did not buy their mansion at 410 North Lake Way until 1994.

After his daughter Ellen married Robert Jaffe in 1968, Shapiro hosted the couple whenever they visited Palm Beach. When it came time for Jaffe to purchase his own home, however, he bought a $7.8 million estate not near his in-laws, but two doors down from Madoff, who of course was his more valuable patron. By then Jaffe had been working as a middleman for Madoff for years, steering eager clients his way and collecting easy fees in return.

Jaffe didn’t have to sell; he didn’t even have to promote—everyone already knew he could grant access to Madoff, and that was all it took. In Palm Beach, unlike in Boston, it’s acceptable for people to share stories of their successes. “When people hear that so-and-so is doing very well, they all go to Jaffe because he’s a neighbor and ask, ‘Please, please let me be introduced,'” says Palm Beach socialite Ava Coleman. “And Jaffe did.”

Among the habitués of the Palm Beach Country Club, there is intense speculation as to just when their fellow member started conning them. If Madoff’s alleged book-cooking was under way before he joined the club in 1996, as some believe, it’s possible that he joined to gain access to a pool of new investors, whose deposits would ensure the supposed consistently high returns that existing clients expected. If, on the other hand, Madoff began (or expanded) his ruse only after joining, the club’s potential role in the scam looks very different. In this theory, Madoff lied about the performance of his funds partly because he couldn’t face the shame of failing to live up to his fellow members’ expectations, or bear the possibility of being exiled from the circle. It sounds crazy, but that’s how powerful a motivator shame (and its avoidance) is for the club’s members.

In a place where appearances matter so much, the patina Madoff built up around his operation ensured it would prove irresistible. Madoff’s investors largely thought they were making serious, old-fashioned investments, not risking their fortunes in the hot new hedge fund. Even toward the end, Madoff’s website was touting holdings in blue-chip companies like Apple, Dell, and eBay. This has allowed some of his alleged victims to remain surprisingly sanguine: Nothing about Madoff’s wild success strained credulity, at least when viewed against the backdrop of Palm Beach.

Bob Lappin is a former manufacturer (he invented the Shetland vacuum cleaner) from Swampscott who spends his winters at the Breakers. He had to shutter his charitable foundation, which sent kids to Israel on heritage tours, after finding out that the $8 million it had with Madoff—its entire worth—was gone.

“I do not berate myself for investing with Madoff,” Lappin says. “Over 17 years, we received confirms of his trades, timely and accurately. Two SEC examinations gave him a clean bill of health. And, of course, Madoff was among the most highly respected members of the financial and philanthropic communities.”

When Madoff was made chairman of NASDAQ, it was not as an honorific, but rather because his new forms of computer-aided trading had revolutionized the industry. He went on to help build the once-obscure NASDAQ into a formidable competitor to the New York Stock Exchange. One of the people who watched Madoff’s rise firsthand is Muriel “Mickie” Siebert, the first woman to gain membership in the New York Stock Exchange. For years, Siebert’s Manhattan office on Third Avenue has been located on the same floor as Madoff’s firm. “I don’t know why somebody who is basically that bright and creative got himself into that position,” Siebert says. “But I know so many people who have been hurt. I know widows whose husbands on their deathbeds told them, ‘Keep your money with Madoff. He’ll take care of you all your life.'”

Adds Lappin: “In every generation, evil people, disguised as paragons of virtue and knowledge, have emerged to take advantage of innocents. In my view, there’s no great lesson here.”